Evans-Pritchard: Food Costs Driving Revolutions

Food prices are not to blame for the growing revolt across the Middle East, but they are a trigger and likely to continue to cause problems in politically weak emerging markets, says Ambrose-Evans Pritchard, international business editor at the Daily Telegraph in London.

“They are the trigger, and have set off a vicious circle. Vulnerable governments are scrambling to lock up world supplies of grain while they can,” Evans-Pritchard writes.

Algeria bought 800,000 tons of wheat recently, he points out, and Indonesia has ordered 800,000 tons of rice. Both purchases were far above normal buying in those countries. Saudi Arabia, Libya, and Bangladesh, are snapping up grain as well.

Food prices are through the roof, surpassed all-time highs in both nominal and real terms, he writes. That has led some political leaders, notably French President Nicolas Sarkozy, to blame commodities traders.

Hogwash, says Evans-Pritchard.

“As Jeff Currie from Goldman Sachs tirelessly points out, future contracts are neutral. For every trader making money by going long on wheat, sugar, pork bellies, zinc, or crude oil, there is a trader losing money on the other side,” he writes. “It is a paper transfer between financial players.”

Governments are the only players with the means to seriously affect commodity prices by hoarding physical goods, he argues. No, it’s not the traders who are to blame, but a serious lack of farmland investment, added to freak weather conditions, he argues.

“The immediate cause of this food spike was the worst drought in Russia and the Black Sea region for 130 years, lasting long enough to damage winter planting as well as the summer harvest. Russia imposed an export ban on grains,” Evans-Pritchard writes.

Poor weather in Canada and Argentina didn’t help, but the big problems are falling crop yields and rising demand among developing Asian economies, plus rising use of food grains for fuel.

All of these headaches could be avoided through investment, particularly in crop growing areas in Africa and Brazil.

“We are on a thinner margin of food security, as North Africa is discovering painfully, and China understands all too well. Perhaps it is a little too early to write off farm-rich Europe and America,” Evans-Pritchard writes.

China faces enormous food problems in the next few years, according to a minister there, reports Reuters.

Food prices are not to blame for the growing revolt across the Middle East, but they are a trigger and likely to continue to cause problems in politically weak emerging markets, says Ambrose-Evans Pritchard, international business editor at the Daily Telegraph in London....